When world leaders assemble for a United Nations conference in Johannesburg later this month, global attention will focus on Africa—its progress, ambitions, and needs. While the primary focus of the World Summit on Sustainable Development (WSSD) may be the environment, the gathering will also provide an excellent opportunity to discuss what is needed to bring truly sustainable development—in the fullest sense of that term—to Africa. The continent's needs are immense. Poverty is endemic, with nearly half the population in sub-Saharan Africa living on less than $1 per day, and almost four-fifths living on less than $2 per day. Life expectancy is less than 50 years, due in large part to armed conflicts, the AIDS epidemic, and inadequate health care and social services. The human suffering underlying these statistics is horrifying.
Encouragingly, important gains have been made across Africa in recent years. In 13 countries, real GDP growth has averaged in excess of 5 percent per year since 1997. Governments are striving to meet the needs of their poorest citizens, while still managing to check the need for deficit financing and reduce inflation—always the worst form of taxation on the poor. A generation ago it was fashionable to debate whether the state on the private sector should lead the way for economic development. Today, we know that development requires both an honest, well-functioning state and a dynamic private sector. Many African governments have embraced this, and are now carrying out the reforms needed to boost private savings and investment, growth, and employment.
There are many good examples of these successes. Mozambique and Uganda, once devastated by war, are now among the most rapidly growing countries in Africa. In Burkina Faso, policies to increase agricultural production and cotton exports have led to faster economic growth and higher incomes for the rural poor. In Botswana and Cameroon, revenues from the extraction of diamonds and oil are being used to develop stronger, more diversified economies. And efforts in Mauritius and Tanzania to strengthen their private sectors have already been rewarded with increased foreign investment.
Yet, achieving a meaningful reduction in poverty requires that these accomplishments be repeated and enhanced, over time and across all countries on the continent. Africa needs sustained growth of at least 7 percent per year, and it needs job-creating growth, particularly in rural areas. This, in turn, calls for better roads and other basic infrastructure, improvements in financial intermediation and wider access to financial services, promotion of regional integration to enlarge markets and expand interregional trade, and better access to education, health and financial services. HIV/AIDS must be combated decisively. At the same time, every effort must be made to use resources efficiently and protect the environment.
These needs were recognized by the United Nations Conference on Financing for Development in Monterey, Mexico. There, an unprecedented consensus emerged that fighting world poverty requires: (i) the recognition by developing nations that they themselves have the primary responsibility to tackle poverty—and that crucial for this is good governance; and (ii) stronger, faster, and more comprehensive support by the international community. Second, and even more important, is the New Partnership for Africa's Development (NEPAD)—an ambitious action program to redevelop the African continent launched by a new generation of African leaders and embraced by the newly formed African Union. NEPAD's long-term goal is an end to poverty in Africa, underpinned by peace, democracy, and the rule of law; development of social and physical infrastructure; and the full participation of African countries in international trade.
What is most significant about this program—and what should help turn its vision into concrete action—is that it is an African agenda, designed and carried out by African leaders and people. It is now essential for the international community to respond with resources to help achieve its goals. There is a role for everyone.
What can the IMF do? At present, the centerpiece of IMF engagement with African countries is its assistance—in collaboration with the World Bank—in supporting poverty reduction strategies. Already, more than two-dozen countries in Africa are engaged in preparing such strategies. While it is still early days, we are encouraged by the progress to date: spending on education, health care, and other social services is rising. Governments are becoming more transparent and accountable, and listening more to the views of their citizens.
The IMF provides financial support for countries' poverty reduction strategies through its Poverty Reduction and Growth Facility (PRGF). At present, US$3.5 billion in PRGF loans to Africa have been approved. In addition, the IMF and World Bank have helped 26 African countries qualify for $41.5 billion of debt relief under the enhanced Heavily-Indebted Poor Country (HIPC) initiative.But in our work on debt relief, we are reminded that the ability to borrow and to attract foreign direct investment is crucial for financing economic development. Therefore, the IMF and the World Bank are intensifying efforts to help African countries develop sound financial sectors and, over time, obtain access to international investment capital. This includes emphasis on banking sector reform and improvement in the regulatory environment—including the adoption of internationally recognized standards and codes the creation of diversified financial institutions to provide start-up and working capital, and the development of soundly managed microfinance institutions, in order to support the needs of small and medium-sized enterprises and the rural sector.
Another critical area where the IMF can help is in capacity building. In close cooperation with the World Bank and other donors, we plan to establish five regional centers in Africa—the first two—in Dar es Salaam and Abidjan—are set to open later this year. These centers will provide locally based technical assistance and training in the Fund's core areas of expertise: macroeconomic policy, tax policy and revenue administration, public expenditure management, macroeconomic statistics, and building sound financial sectors.
There are two key areas where the rest of the donor community can help: aid and trade.
We welcome the action plan recently announced by the G8 countries in their latest summit in Canada to increase assistance to Africa. However, even stronger support should be possible as these countries demonstrate that they are putting the aid to good use. Meeting the UN's 0.7 percent of GNP target for annual development assistance from the industrial countries would enable both an adequate response to the AIDS epidemic (estimated to require some US$10 billion per year) and significant poverty alleviation.
It is equally critical that African countries be accorded better opportunities to expand and diversify their exports. Industrial countries can help by opening markets and phasing out trade-distorting subsidies—beginning with agriculture, textiles, and labor-intensive manufactures. Industrial countries should also work to reduce duties on poor countries' processed products, as such tariff structures push African countries to concentrate on producing raw materials and increase their vulnerability to declines in world commodity prices.
Recently, there have been welcome initiatives in the European Union and U.S. to improve market access for low-income countries. But these clearly do not go far enough or fast enough, as industrial countries still spend more than $200 billion each year on agricultural subsidies alone. And the recent U.S. Farm Bill clearly could be damaging to some African economies. While subsidy reform will undoubtedly be politically difficult, this is one of the most effective ways of helping poor nations.Africa's needs are great. The ambitions of NEPAD and the recent economic progress of many countries are encouraging. But it will be up to the rest of us—the IMF, other international organizations, and developed countries—to work in partnership with African governments and provide the support they need to eradicate poverty and realize Africa's potential.
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